How Do Tenant Referencing and Credit Checks Work?

The tenant referencing process in the UK rental market is often seen as a big hurdle to get over before you’re allowed to rent a property. Most people have no idea what happens when they are being referenced or how the result (‘pass’ or ‘fail’) is reached.

Here we peel the lid off the credit check and referencing processes, and tell you exactly how they work, along with how long tenant referencing takes, and how referencing companies come to the conclusion they do when deciding whether to pass or fail a tenant.

Different Checks for Different Tenants

The first thing to know is that referencing companies want different info from different kinds of tenant. What matters here is whether the tenant is:

Employed

Self-Employed

a Student

Claiming Benefits

Retired

Furthermore, there are different requirements for tenants and guarantors.

Employed Tenants

Tenant whose income is from being an employee are asked to provide their employment details and contact information for an employer referee on their application form.

Our referencing partners will always seek written verification of employment details for all employed applicants by email, fax or post, including length of employment, position held, salary/earnings and contract type

If the applicant is employed on a temporary employment contract or a fixed term contract that is due to expire before the end of a tenancy, then a suitable guarantor will be recommended

If the applicant is employed by a company that is operating from a residential address and/or the employment cannot be verified as genuine, then a suitable guarantor will be required

Verbal references will not be accepted and emailed references must be sent from a business email address (a registered domain name which resolves to the company website)

References submitted by the applicant are not accepted – confirmation must come directly from the employer as a reply to our request

The tenant’s rent is less than approximately 35% of their gross monthly income

Self-Employed Tenants

Self-employed tenants must be able to demonstrate their income over a 12-month trading period. If they have not been self-employed for one year or more, a suitable guarantor will be required.

Self-employed income can only be verified by a chartered or recognised accountant in response to the request for information. In the event that the applicant does not use an accountant then our referencing partners will accept a copy of their most recent filed tax return but they may also ask for additional proof of income such as bank statements.

Verbal references will not be accepted and emailed references must be sent from a business email address

The tenant’s rent is less than approximately 35% of their gross monthly income

Students and Housing Benefit Applicants

Our referencing partner usually requires a guarantor for (i) students with no income from employment and (ii) tenants that rely on housing benefits to pay the rent.

For applicants of this type, we recommend that a guarantor application is submitted at the same time as the tenant application since it almost certain to be needed (more info below).

Retired Applicants

Our referencing partner requires retired applicants’ annual pension statement, last three months’ bank statements, a reference from their pension administration, or a P60.

To pass, the tenant’s rent should be less than approximately 35% of their gross monthly income

Independent Means

Tenants paying through independent means will need to provide last month’s UK bank statements, showing savings of at least six times the rent for the term of the tenancy. Any other type of savings are reviewed on a case-by-case basis

Benefit Income

Income from benefits is sometimes counted in a tenant’s income, and sometimes not.

Child Tax Credit and Working Family Tax Credit can be included within the affordability calculations once verified by award notice and a supporting bank statement

Child Benefit cannot be included within the affordability calculation

Housing Benefit/Housing Allowance and Carer’s Allowance are not generally taken in to account within affordability calculations.

Long term Disability Living Allowancewill be considered if acceptable proof can be supplied

What Checks Are Done for Renting?

These are some things that all types of tenant will need to provide as part of any rental reference check.

Address Information

Each prospective tenant is required to provide their addresses for the last 3 years. These addresses will be used to carry out credit checks.

Ideally, the credit check results will confirm if the applicant has been located at the supplied addresses using electoral roll data and information from credit accounts e.g. credit cards, mortgages, mobile phone contracts, etc.

If the applicant is not confirmed at the addresses searched it will be necessary for them to provide suitable proof of residency to satisfy the referencing company that the correct addresses have been searched

You will be sent a list of appropriate evidence, e.g. utility bills with your name and the property address on

Previous Landlord Reference

Our referencing partner will always seek a reference from the current landlord or letting agent when a tenant is living in rented accommodation.

Our referencing partner may accept a verbal reference from a private landlord as a last resort but references from letting agents must always be in writing

If a negative reference is received then they will make a recommendation based on the content of the reference. If the problems with the tenancy were financial it is likely that they will recommend that you proceed with a suitable guarantor.

What Are the Reasons for a Tenant Failing Referencing?

The most common reasons for a tenant to not pass referencing checks are:

The applicant has insufficient income

The applicant has credit history problems, CCJs or has been insolvent

The applicant is unemployed or there are concerns about the status of their employment

The applicant is self-employed and unable to provide acceptable proof of income

We receive a negative reference from the current landlord

The applicant is a student, unemployed or on Housing Benefit

The applicant’s history of residence or identity cannot be verified

The application is considered generally weak for any other reason – though this is rare

What If a Guarantor Is Needed?

Guarantors must be residing in the UK. Residency at their current address must be verified by credit history and/or electoral roll data.

A suitable guarantor will have a clear credit history with no CCJ or insolvency data

Their income must be verified to be sufficient to cover the tenant’s rent.

Affordability calculations for guarantors start at 25% of their gross monthly income

Home ownership is a plus, though not a necessity, and will be considered in connection with their verified income

Self-employed guarantors must having been trading for at least one year and provide a reference in an acceptable format, as described previously for self-employed tenants

How Can a Guarantor Fail Referencing?

A guarantor goes through similar referencing checks to those done on a tenant. A rental guarantor can fail referencing for a number of reasons:

Any negative credit history is located

The guarantor has insufficient income

The guarantor is employed on a temporary contract or casual employment